Archive for July, 2017

The Main Six Self-Directed IRA Real Estate Rules

Monday, July 24th, 2017

It needs to be stated that there are definitely more self-directed IRA real estate rules to follow. These are just a handful of rules to get you started on thinking about real estate. Is it right for you? Do you suppose you can easily follow these rules?

Keep it separate

You and your IRA have to remain as two separate entities. Therefore, on all paperwork on your investments, your IRA is solely named. To also keep everything 100% IRS compliant, your IRA administrator helps you with documents and any sort of legal paperwork.

Funding real estate

The real estate property can be bought 100% by your IRA. Regardless if you have $50,000 in your IRA, and you need $100,000 to buy a property, the other half of the money can be loaned to your IRA. However, payments for that $50,000 loan will be paid by your IRA as well. Never by you personally.

Overnight stays

You also cannot stay overnight in the property. Period. Even for one night. If you violate this rule, there’s a chance that your IRA could result in serious tax consequences. This includes any and all personal use for vacations by yourself, or by your family. Think of it this way: your IRA owns the property, not you personally.

Disqualified persons

As mentioned above, the property cannot be used by you or your family. So who specifically are we referring to? Yourself, obviously, your spouse, your children or parents, including any in-laws. They are what the IRS refers to as Disqualified Persons. These same people cannot conduct any business with you or your IRA, and they cannot directly benefit from the property. Say there’s a repair needed, like plumbing, and your father-in-law has a plumbing company, he, unfortunately, cannot do the work needed, because he’s disqualified.

Repairs and fees

All services must be paid through to the IRA. Again, using the plumbing example, if there’s $300 worth of plumbing repairs needed, that money must come directly from your IRA. Utilities are paid with your IRA, or if there are HOA fees due, those also must be paid for by the IRA.

The money coming in

Finally, rent deposits, rent checks, any capital gain, is all funneled back into your IRA. Because again, all the money coming in and going out goes through your IRA. Simple as that.

A Simple Explanation of a SIMPLE IRA

Monday, July 17th, 2017

A SIMPLE IRA stands for Savings Incentive Match Plan for Employees, it’s a type of retirement account for small businesses, and for people who are self-employed. It works like a Traditional IRA, where your contributions grow tax-deferred. When it comes time for retirement, your distributions are taxed as normal income.

SEP IRA vs. SIMPLE IRA

While SEP IRAs and SIMPLE IRAs get mixed up sometimes, they’re actually pretty different. SEP IRAs don’t allow the employee to make the contributions, the employer does. A SIMPLE IRA gives the employee more power over their IRA.

Why a SIMPLE IRA

What makes a SIMPLE IRA unique is that employers are required to make a contribution on the employee’s behalf. The employers are required to contribute a dollar-to-dollar match of up to 3% of salary or a flat 2% of pay, regardless of whether the employee continues to contribute to the account.

Employee benefits

For an employer to open the IRA, they must have 100 or fewer employees. Those employees must also earn more than $5,000 each. That includes all employees who have worked at any point in a calendar year. The employer also cannot open or have any other retirement plan other than the SIMPLE IRA.

If your employer offers a SIMPLE IRA, you qualify to contribute if you earned at least $5,000 a year during any two years before the plan was set up, and if you expect to earn at least $5,000 this year.

The employer can lower the matching contribution to 1% or 2% of total compensation. But only in any two out of five years that the plan is in effect. In the other three years, the company must make either a 3% match or the 2% flat contribution.

All-in-all, whether you’re a business owner seeking a retirement plan for your employees, or if you’re a freelance employee, this IRA plan might be the answer to your retirement needs.